18-09-2012, 01:51 PM
Plastic Money
The idea of using a card to make purchases was first thought of by Edward Bellamy in 1887. He wrote a book, “Looking Backward”, which described his idea of a utopian society. In this book, he coined the term “credit card.” Since that time, advancements have been made that have allowed this idea to become a reality.
Electronic verification systems emerged that allow merchants to verify a credit card is valid and has enough credit available to cover a transaction in a matter of seconds. The data from the card is most commonly obtained from a magnetic strip on the back of the card. Software has been created by many credit card companies that monitor the use of the credit card. If a purchase seems to be out of the customer’s norm, a credit card may become inactive, until the purchase can be confirmed by the customer. This added feature significantly decreases the amount of fraud committed on these cards.
The surfacing of such technology has lead to the creation of many jobs. Every credit card company employs thousands of customer service representatives. These representatives are normally available 24/7 to answer any questions. Jobs were also created for account managers, or better known to the public as collection representatives. Fraud Prevention positions arose since fraud has become a major issue with credit cards. Training positions arose to keep all employees up to date in this always-changing industry. Business Technology (BT) positions were produced to aid with the creation, stability and updates of software used by customer service and account managers. Most of these positions, except for BT, don’t require extensive education, yet the income generated for the average employee is often competitive with that of the average college graduate. An account manager at Discover Financial Services Incorporated (DFSI) can make up to $20 dollars per hour plus commission (but the average is closer to $15 per hour). This commission can be as high as $3000 per month. Benefits include a 401k plan with a company match, a month of Paid Time Off (PTO), a health plan, discounts on company stock, tuition reimbursement and even a pension! In order to save costs, many companies shipped these jobs to other countries. Currently, DFSI has a call center in New Albany, Ohio, but many of the employees don’t have a sense of job security. It is very likely that one day DFSI will have a call center in another country.
Credit card
A credit card is part of a system of payments named after the small plastic card issued to users of the system. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card, where a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the same shape and size as specified by the ISO 7810 standard.
How credit cards work
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Credit card
An example of the front in a typical credit card:
1. Issuing bank logo
2. EMV chip
3. Hologram
4. Credit card number
5. Card brand logo
6. Expiry Date
7. Cardholder's name
An example of the reverse side of a typical credit card:
1. Magnetic Stripe
2. Signature Strip
3. Card Security Code
Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.
When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.
Interest charges
Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.
For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the Annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as RRFC or residual retail finance charge. Thus after an amount has revolved and a payment has been made, the user of the card will still receive interest charges on their statement after paying the next statement in full (in fact the statement may only have a charge for interest that collected up until the date the full balance was paid...i.e. when the balance stopped revolving).